Tag Archive for: Leucadia National

During the last four years I invested my money according to the value philosophy. This was pretty rewarding as the returns were an average 12.26% per year, totaling 58.8% from beginning 2010 to the end of 2013. Unfortunately is value investing a time consuming job. If you want to do it right, you should put a lot of time into reading about companies. Not only consistently reading about the companies you are already invested in, but also reading about their competitors or about companies you might want to invest in at a later stage. This, however, has become impossible for me to do as I entered the last stages of my studies law and business economics. Therefore I sold most positions.

2013 was a great investment year. The S&P 500 increased almost 30% and the AEX 17%. My portfolio, after two years of outperformance, didn’t outperform the markets in 2013 (+16%). The graphic below explains for a big part the reason why.

Although the graph doesn’t exactly grasp 2013, it clearly shows that none of my stocks outperformed the S&P 500 and Ensco even declined during the year. As I told you after the years when I did outperform the market, is one year of out- or underperformance not a big deal. Even after four years of investing there might be a problem to reach a conclusion based on the results. The reason of this is that we haven’t had a real bear market since 2009. The only way the market went was up and this is shown in the valuations of the stock market. Some of the businesses in my portfolio are also valued near fair value. Therefore, you shouldn’t be surprised if I will sell some stocks if the market advances further. This will, on the other hand, have the effect that it will be even less likely to outperform the market on the way to its top. But that is not the objective. The objective is to gain on the long run.

In other news, my broker again didn’t give me a present at year’s end. Probably because they didn’t make a lot of money of me in 2013, only two transactions were made:

HCC Insurance Holdings (HCC) sold on November 14 2013 for $45.95 based on valuation as discussed here.

Crimson Wine Group (CWGL) sold on April 26 2013 for $8.98. The reason for the sell is mentioned here.

Holdings

Fairfax Financial Holdings (FFH): bought in November 2012
Berkshire Hathaway Inc. (BRK.B): bought in January and April 2012
Ensco PLC (ESV): bought in January 2010
Wal-Mart Stores, Inc. (WMT): bought in December 2012

News in Q4:

In October 2013, Leucadia stopped funding Sangart’s research and development activities. Sangart was developing medicines and lost $25, $43 and $45 million in 2010, 2011 and 2012. By stopping the development of the medicines the losses will cease and the profit of the Leucadia company will increase. On the other hand, the chance on a blockbuster medicine is gone now, if it ever existed. (Source: Leucadia 10-Q Q3 2013)

In my Q3 investment review I talked extensively about Fairfax and their offer to take-over BlackBerry (BBRY). On November 4 it was announced that the take-over was off the table but that Fairfax and other institutional investors will invest $1 billion in BlackBerry through convertible debentures paying 6% for seven years. About two months later BlackBerry announced that Fairfax would take on another $250 million. This will get their total investment in BlackBerry to $500 million in debt and $440 million in equity. The debt is convertible at a price of $10 per share, a 28.7% premium to the closing price on November 1, 2013. This seems like Fairfax is investing more money into Blackberry, the opposite of what Fairfax (implicitly) said they would do when they wanted to take it private. But in a SEC filing from January 17, 2014 the following is stated:Fairfax intends to sell Shares over time in order to rebalance its ownership in BlackBerry, subject to the above-noted restrictions.Those restrictions are:Fairfax agreed that until November 13, 2014neither it nor its affiliates would beneficially own more than 19.9% or less than 9.9% of the outstanding Shares.So, here is some reassurance that the position in BlackBerry won’t be too large and will get smaller over time. Another reassuring fact is that the new investment is in debt that is convertible at a price of $10 per share, a 28.7% premium to the closing price on November 1, 2013. Because of the option to convert for shares on quite favorable terms, the debentures have almost all the possible upside of shares while also having the safety of debt. I think they can even get their money’s worth if BlackBerry doesn’t succeed. It is at least until now the only long term debt on the book and BlackBerry’s assets are probably good for $1.25 billion.

Below the portfolio as of December 31, 2013 and the performance of the portfolio until December 31, 2013. To see the table from last quarter, click here.

Click on table for larger view.

Portfolio

Performance

Note:

The Portfolio (1) is denominated in Euros. Transaction costs, custody fees (bewaarloon) and dividends are when necessary included in the Annual Percentage Change. (Dividend tax is included in full years (2010 to 2012)).

The AEX (2) is a stock market index composed of Dutch companies that trade on Euronext Amsterdam. The Annual Percentage Change is calculated without taking the dividends of the current year (and 2013) in account.

The S&P 500 (3) is a stock market index based on the market capitalizations of 500 large companies whose common stock is publicly traded on the NYSE. The Annual Percentage Change is calculated without taking the dividends of the current year (and 2013) in account.

Since 14 May 2012 the currency risk isn’t hedged anymore. This means that currency fluctuations can significantly influence the performance in the short term. To show how the currency fluctuated during a certain period, an extra column is added with the fluctuations since 14 May 2012. A decline indicates that the US dollar has become stronger against the Euro and vice versa.

“Total debt (private and government) as a percentage of GDP in the U.S., Europe and the U.K. are at very high levels, thus limiting the options available to governments. Deleveraging in the private sector has only just begun. In spite of the significant deficit spending in the U.S. and Europe, high levels of unemployment prevail in both areas and economic growth continues to be very tepid. In fact, Europe and the U.K. appear to be heading for another recession. The markets are ignoring this as they believe the Fed and the European Central Bank will bail us out – again! … In spite of QE1, QE2 and recently QE3, the economic fundamentals remain weak while stock markets and bond markets are back to near record levels, leading Gary Shilling, one of the best economists we know, to call this “the grand disconnect”. This “disconnect” or gap will be closed by either economic fundamentals rising to meet the financial markets or the markets coming down to meet the fundamentals.”